Investing is one of the most effective ways to help you create wealth. However, there…
Buying a home is one of the most important investments you will ever make. However, the same can be said of an investment property too. Many property investors are rookies who are not aware of the risks associated with property as they are with regular investments, and jump into it without proper research and knowledge.
Keep in mind that investing in property could be a high-risk activity, as the property market is volatile and subject to variations like any other investment. Accordingly, property investors are should have a satisfactory level of market knowledge before jumping in.
According to realestate.com.au “Enquiry volumes to real estate agents from investors has surged by 58% in the 12 months to April 2022, compared to a year earlier. That’s compared to just an 11% uplift from those identifying as first-home buyers and a 31% drop-off in enquiry volumes from owner-occupier buyers.”
WIth adequate due diligence, property investment could offer a good way to generate a steady passive income and build wealth in the long run for beginners.
In this guide, we will discuss some of the things you need to consider before jumping headlong into an investment property purchase.
What to Do Before Investing in Property in Australia as a Beginner
Tip #1: Identify Your Financial Goals
It’s important to understand your financial goals before taking the plunge into any investments, especially deals that typically involve a large deposit and sizeable loan like property does. Investment in property can be a very good way to accumulate wealth in the long run, but it is important to determine your reasons for investing in property as well. Ask yourself the following questions:
- What is your investment timeline?
- How do you want to use your investment?
- What is your long-term financial goal?
- How much will you invest in the process?
- How liquid do you need your investment to be?
By getting to understand your financial goals, you can lay a strong foundation for your wealth-building strategy. Knowing your goals will allow you to come up with a more comprehensive financial plan and work towards achieving it.
Tip #2: Explore Your Options and Choose the Right Investment Strategy for You
When you are an inexperienced property investor, it may be best to choose a strategy that is easy to understand and then execute it under the guidance of a professional financial adviser.
For example, you could invest in a low-maintenance residential property as an investment vehicle to build your financial independence in the long run, and rent it out to a tenant. By doing so, you will be generating a steady income and building wealth simultaneously over the long term.
On the other hand, if you are looking to invest in property as a source of income over a shorter term, you might want to consider using the “flipping” strategy. With this strategy, you buy a cheaper property and sell it at a higher price once the location experiences growth. Since this strategy involves market speculation, considerable risk and a short-term view, you should be sure that you have the financial capability to deal with the potential volatility and losses, as well as having an in-depth knowledge of the property market.
Every investment property strategy comes with ongoing expenses, whether this is land and water rates, interest expenses for your investment loan, ongoing property maintenance, or renovation projects. So, you need to ensure that you have sufficient short-term and long-term sources of income to fund these expenses and that you have incorporated this into your financial plan.
You can seek out guidance about your chosen location from local property professionals including real estate agents, property managers and buyer’s agents. Being informed also means steering clear of get-rich-quick schemes and property peddlers. If someone is promising you guaranteed returns and overnight riches, walk away; the only person getting rich is them.
Tip #3: Consult with a Mortgage Broker to Prepare for Upfront Costs
Property investment requires a lot of upfront capital, and therefore, you must have a good plan to raise the required funds. Unless you have the financial capacity to raise the money yourself, you will probably need the help of a mortgage broker.
As a beginner, it will be beneficial if you seek guidance from a knowledgeable mortgage broker to help you prepare for future costs. A good mortgage broker will have the proper knowledge and experience to help you secure the right type of loan, at a competitive interest rate for your property investment to keep your expenses to a minimum.
The Bottom Line: Do Your Research Before You Jump Into Property Investment
Taking the first step is always the hardest, but with a financial plan from an experienced financial adviser and the right property partners (like a buyer’s agent and mortgage broker), you will be able to start your property investment journey with confidence and peace of mind.
Are You Looking for the Best Financial Planner in Newcastle?
Managing your finances for wealth creation can be tricky for many people – be it for setting aside your income for retirement, building savings, funding monthly expenses, or seeking other investments to build your portfolio. The professional financial advisers of Newcastle Financial Planning Group are here to take the guesswork out of your finances as we take a tailored approach to your unique needs and personal circumstances.
If you’re overwhelmed about making decisions for your retirement plan, superannuation, and investments, call us or book online to secure a complimentary first meeting! Let’s talk about what we can do to help you achieve financial success and security.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.